The Recovery Audit Contractors are rolling out: Are you prepared?

Get your utilization review committee, peer review process ready to go

If there's anything to be learned from the Recovery Audit Contractors (RAC) demonstration project, it's that your hospital could take a significant financial hit. With the economy lagging, budgets tightening, and staff dwindling, the impact of a RAC audit could be devastating to your hospital's financial foundation.

The RACs now are finally rolling out across the country. And despite continued confusion about the rules and the continual updates, you need to know what you can do to be ready for the "RAC attack." Having a utilization review committee that fits Medicare's Conditions of Participation (CoPs), educating physicians on what auditors will be looking for, and implementing an effective protocol for peer review of medical records are three ways you can move in the right direction.

Of the first, Deborah Hale, CCS, president of Administrative Consultant Services LLC, a health care consulting firm based in Shawnee, OK, says many hospitals aren't in compliance. Though the CoPs require it, Hale says, "Many hospitals don't have an effective utilization review committee. . . They're trying to run this program with case managers who are inappropriately making final decisions about medical necessity of admission." The UR committee and the peer review component therein are quite significant in dealing with RAC audits.

The importance of the UR committee and peer review

"Typically, peer review — physician-to-physician review — is directed more toward quality; but one of the most significant recoveries that were made during the demonstration project for the RACs had to do with medical necessity of admission. And, of course, the final decision that an admission is medically unnecessary, according to the CoPs and the Medicare Benefit Policy Manual, can only be made by another physician. So peer review is critical to hospitals being able to demonstrate their ongoing compliance," she says.

The utilization review committee must include at least two physicians (either doctors of medicine or osteopathy); yet they don't have to be practicing. Hale says you can have other representatives at the table, such as quality improvement directors, case managers, and financial officers, but only the physicians can vote in determining whether a record supports medical necessity of inpatient admission.

In fact, recent updates that went into effect July 1 in the Medicare Benefit Policy Manual and the Medicare Claims Processing Manual reminded hospitals that nurses cannot make final decisions on the appropriateness of medical necessity determinations — only physicians. Medical records that don't meet screening criteria should always be evaluated by another physician, Hale says. Review of admissions may be performed before, at, or after hospital admission. However, moving to a real-time review of records is what you want to work toward.

When this peer review process for an inpatient not meeting the inpatient screening criteria is completed while the patient is still hospitalized and that review confirms the inpatient admission to be medically unnecessary, the hospital protects its right to bill for the procedures and testing provided during the stay. By completing this peer review process prior to the patient's discharge, the patient's status can be changed from inpatient to outpatient. This process allows the hospital to file an outpatient claim (Bill type 13X or 85X) with Condition Code 44 that includes all medically necessary services ordered by the physician(s) and provided by the hospital, according to Hale.

If this same peer review process is performed retrospectively (after discharge), the hospital must file a Provider Liable claim and may only bill for medically necessary diagnostic services such as lab and X-ray and certain surgical supplies and prosthetics, she says. Whether the peer review is concurrent or retrospective, the attending (or admitting) physician has the right to provide his or her view before a final determination is made.

"I think what I see being most common is the hospital's real intent and desire to identify those cases that are not appropriate inpatient admissions based upon screening criteria like InterQual or Milliman. But many are not following the requirement that a physician be the one to make the final decision," says Hale, who attributes this to a lack of knowledge of the rules.

Education on Medicare's requirements

It's the responsibility of the hospital to provide medical staff education and awareness regarding appropriate level-of-care determinations, she says. "Many hospitals will read the guidelines and not completely understand the requirements, especially for Condition Code 44. They think that as long as the attending physician agrees to make the change, that's all they need. And that's not the case."

Hale says peer review is required for medical necessity of admission determinations, even with the agreement of the attending physician to change the level of care from inpatient to outpatient.

Hale says hospitals are falling short, both in having a UR committee and in having a sound peer review process in evaluating records. Getting up to speed "involves infrastructure that has the support from the CEO on down. It's got to be a philosophy of management that we are going to address this issue and that we're going to give it the resources — the human resources and the time resources — that are necessary to do the process according to regulatory guidelines," she says.

Many hospitals build the UR committee into the quality improvement one, but Hale believes the heady agenda of both necessitates two separate teams.

The UR committee has to have the staffing, but it also has to have the knowledge, Hale says. "We can't just have physicians who rubber stamp things. They've got to be trained appropriately to understand the issues, without being influenced by politics or some of the other dynamics within a hospital. They've got to be able to make sound clinical judgments that are evidence-based as to what's appropriate and what is not. It's really the hospital putting their compliance, their success in the hands of these physicians, and they've got to know they've been properly trained and they have the integrity to carry out that role appropriately."

Hale laughs when asked about just who is responsible for educating the medical staff on all the CMS requirements. She says many commenters have asked CMS if the agency will be offering any education for physicians and its response is, "It's the hospital's responsibility."

Because of the complexity of the rules and the frequent modifications and updates, Hale says many hospitals are working in concert with consultants to provide education. Because now, lack of education can cost your hospital big.

If you're looking at consulting companies, Hale says "you really want to look for a firm that has real experience in the field, that has a track record. And another thing hospitals should always look for is that recommendations made by the consulting firm are supported by published regulatory guidelines. If they can't give you chapter and verse as to where that rule is published, then you should really think twice about implementing a recommendation."

Identifying opportunities for improvement

Identifying problematic areas and physician patterns is the next step in preparing for the RACs. "If you just try to deal with correct level of care determinations on a chart-by-chart basis, you will forever be spending time, probably full-time for a large staff, to get through every record," Hale says.

She suggests analyzing data to identify entry points where admissions are most often likely to be unnecessary and then drilling down from there to see which physicians and specialties are most often noncompliant to direct education or process redesign. In doing this, you can also reassign or add case management staff to cover your vulnerable areas.

Data measures to collect

Hale also suggests collecting data about short stays — one- and two-day stays and other procedures or DRGs most often found to represent unnecessary admissions in the RAC demonstration project.

Find out how many one- and two-day stays you have assigned to the specific problematic DRGs found in the RAC demonstration project. She also suggests looking at the following to see if anything can be improved (i.e., more staffing, etc.):

  • what day of the week these patients typically are admitted;
  • who the attending and admitting physicians are;
  • time of day the admissions occurred.

RACs can review any records back to Oct. 1, 2007. "So there's not much hospitals can do other than self-disclose or get additional documentation for those records. It may be possible that the physician actually does have additional information that would help support why they did what they did. The hospital should certainly consider asking the attending [physician] to provide addendums to the record when that is the case. [And they must be] properly dated and authenticated," she says.

Use physician advisors if you can

If your hospital has the resources to employ physician advisors, Hale recommends that you do it. If you find a case of a patient who should have been admitted as an inpatient but was instead referred for outpatient observation services and you address it in a timely manner, the physician advisor can recommend to the provider of record that the status be changed to inpatient, she says. Physician orders for the appropriate status benefit the hospital and the patient. "Because we can't have a meeting of the utilization review committee every day to address those kinds of issues, then the role of the physician advisor allows us to get peer review quickly and protects our right to bill for all services provided."

The physician advisor can always speak with the attending physician about what he or she was thinking. And the physician advisor can get additional information from the provider that allows him/her to say, "Hey, I think the physician's inpatient order is correct. The fact that it doesn't meet criteria isn't the problem. It's OK. I can approve it based on clinical judgment and will document the rationale for this decision in the medical record."

She says there's been a rash of "rent-a-doc" or physician advisor companies because the RAC audits have such a big impact on hospitals' financial solvency. Sometimes, she says "it's just too hard to get around the politics in the hospital [to get unbiased internal peer review], especially in the smaller hospitals. They can't really afford to have a physician advisor full-time, and if it's a practicing physician in a small hospital, he's almost always going to have a financial interest in the case or a professional interest in the case, which would make that physician ineligible to render a decision. So renting or contracting out this physician advisor for this peer review process has become very attractive."

Bottom line, she says, is make sure you're compliant with Medicare's requirement for peer review. "I think that's the No. 1 liability [hospitals] face right now as they anticipate RAC audits. And make sure that the physicians they are using for peer review are appropriately trained so that they can make judgments that are consistent with Medicare regulatory guidelines because the hospital's compliance, the hospital's ability to avoid denials lands squarely in their lap."

(Editor's note: To see findings from the RAC demonstration project and the expansion schedule visit: and select "CMS RAC Demonstration Evaluation Report." See Appendix G for top services with overpayments and Appendix P for service-specific examples of overpayments.)